Tracking Lou Simpson's SQ Advisors Portfolio - Q1 2018 Update

|
Includes: AAPL, ALSN, AXTA, BAM, BRK.B, CABO, CHTR, HXL, KMX, LBRDK, LBTYK, SBAC, SCHW, ST, TYL
by: John Vincent
Summary

Lou Simpson’s 13F portfolio value decreased from $3.08B to $2.93B this quarter.

Simpson added CarMax while selling Axalta Coating Systems and SBA Communications.

SQ Advisors has just fifteen positions. The top three holdings are Allison Transmission, Brookfield Asset Management, and Charles Schwab, and they add up to one-third of the entire portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Lou Simpson's 13F portfolio on a quarterly basis. It is based on Simpson's regulatory 13F Form filed on 05/15/2018. Please visit our Tracking Lou Simpson's SQL Advisors Portfolio series to get an idea of his investment philosophy and our previous update for the fund's moves during Q4 2017.

This quarter, Simpson's 13F portfolio value decreased ~5% from $3.08B to $2.93B. The number of holdings increased from 14 to 15. The top five positions represent around ~55% of the 13F assets: Allison Transmission (NYSE:ALSN), Brookfield Asset Management (NYSE:BAM), Charles Schwab (NYSE:SCHW), CarMax (NYSE:KMX), and Liberty Global (NASDAQ:LBTYK).

Since inception in 2011, SQ Advisors has held a very concentrated portfolio of 10 to 15 positions. Lou Simpson classifies his investing philosophy as being more in the "scuttlebutt" mold. To know more about that investing style, check-out the book Common Stocks and Uncommon Profits and Other Writings.

Lou Simpson gave a rare interview for KellogInsight in November 2017. The following quote from that interview nicely summarizes his investment philosophy:

"What we do is run a long-time-horizon portfolio comprised of ten to fifteen stocks. Most of them are U.S.-based, and they all have similar characteristics. Basically, they're good businesses. They have a high return on capital, consistently good returns, and they're run by leaders who want to create long-term value for shareholders while also treating their stakeholders right."

New Stakes:

CarMax Inc.: KMX is a large (top five) 10.45% portfolio stake established this quarter at prices between $59.50 and $72.50, and the stock currently trades at $66.72. For investors attempting to follow Simpson, KMX is a good option to consider for further research.

Stake Disposals:

None.

Stake Decreases:

Charles Schwab: SCHW stake was increased by ~50% during the period from Q4 2011 to Q4 2013 at prices between $11 and $26. Q1 2014 saw an about turn as the stake was reduced by 20% at prices between $23.50 and $28.50. The following five quarters saw a combined ~80% increase at prices between $25 and $33.50. There was a ~40% selling in Q4 2016 at prices between $31 and $40.50. The stock currently trades at $59.32. The position is now Simpson's third-largest stake at 10.61% of the portfolio. There was an ~8% selling in Q1 2017 and a ~5% further reduction over the last four quarters.

Liberty Global: LBTYK is a large (top five) ~10% of the portfolio position. It was established in Q3 2014 at prices between $40 and $43. Q3 2015 saw a ~60% increase at prices between $41 and $51. Q2 2017 also saw a ~16% increase at prices between $27.85 and $35. The stock currently trades well below those ranges at $28.34. For investors attempting to follow SQ Advisors, Liberty Global is a good option to consider for further research. Last two quarters have seen marginal trimming.

Axalta Coating Systems (NYSE:AXTA): AXTA was a fairly large ~8% of the portfolio stake established in Q3 2016 at prices between $26 and $29 and increased by ~45% since at prices between $24.50 and $36. It was almost sold out this quarter at prices between $30 and $33. The stock is currently at $32.21.

Sensata Technologies (NYSE:ST): ST is a 6.85% portfolio position purchased in Q3 2016 at prices between $34.50 and $40 and increased by ~70% since at prices between $36 and $53. The stock currently trades at $52.98. There was a marginal trimming this quarter.

Apple, Inc. (NASDAQ:AAPL) and Tyler Technologies (NYSE:TYL): These two positions were established in Q4 2016. AAPL is a 6.91% portfolio stake purchased at prices between $106 and $118, and the stock is now well above that range at $187. The 6.32% TYL position was purchased at prices between $141 and $171 and increased by ~27% over the next two quarters at prices between $143 and $177. It currently goes for $227. Both positions saw minor ~2% reductions this quarter.

Charter Communications (NASDAQ:CHTR): CHTR is a 6.63% portfolio stake established last quarter at prices between $316 and $371, and the stock currently trades well below that range at $268. There was a ~3% trimming this quarter.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B): BRK.B is a fairly large 5.42% of the portfolio position. The original stake was increased by roughly 40% in Q1 2012 at prices between $76 and $82. The period through 2015 saw a stake doubling at higher prices. 2016 saw an about turn: one-third overall reduction at prices between $126 and $166. Last year had also seen a combined ~45% further selling at prices between $160 and $200. There was another ~23% selling this quarter at prices between $191 and $217. The stock is now at ~$197.

SBA Communications (NASDAQ:SBAC): SBAC was a ~6% of the portfolio position purchased in Q1 2017 at prices between $103 and $121. The stock currently trades at ~$158. The position was almost sold out this quarter at prices between $153 and $175.

Note: SBA Communications did an REIT conversion transaction in January 2017 - the deal was structured as a merger with its REIT subsidiary.

Hexcel Corporation (NYSE:HXL): HXL was a 2.42% portfolio stake established in Q4 2016 at prices between $42 and $55 and increased by two-thirds in the following two quarters at prices between $49.50 and $55.50. The position was sold down by ~55% last quarter at prices between $57 and $64. The stock is now at $70.43. This quarter saw the stake almost eliminated at prices between $61.50 and $69.

Stake Increases:

Allison Transmission Holdings: ALSN is now the largest position at ~12% of the portfolio. It was first purchased in Q2 2016 at prices between $26 and $29 and increased by ~30% the following quarter at prices between $26.50 and $30.50. There was a ~17% trimming in Q4 2016 at prices between $27 and $35. Q3 2017 saw a ~45% increase at prices between $33 and $39. The stock is currently at $43.43. There was a ~24% increase this quarter at prices between $37.50 and $45.50.

Note: SQ Advisors has a ~6.5% ownership stake in Allison Transmission Holdings.

Brookfield Asset Management (BAM): BAM is the second-largest position at 11.75% of the portfolio. The original position is from Q2 2012 at prices between $17.50 and $21.50. Q1 2015 saw a ~50% increase at prices between $32.50 and $36.50, and the following quarter saw a further ~60% increase at prices between $34 and $38. Q3 2015 also saw another ~25% increase at prices between $29.50 and $36. There was an about-turn in 2016: ~40% overall reduction at prices between $27.50 and $36. The stock currently trades at $40.32. There was a ~15% stake increase this quarter at prices between $38 and $44.

Note: BAM stock split 3-for-2 on May 11, 2015. Also, Brookfield Business Partners (NYSE:BBU) was spun off in July 2016. The prices quoted above are adjusted for those transactions.

Cable One Inc. (NYSE:CABO): CABO was a very small 0.78% stake established in Q3 2016. The following quarter saw a huge ~550% increase at prices between $570 and $624. Last quarter saw another ~55% stake increase at prices between $664 and $759. The stock currently trades at $660. The stake is now at 8.55% of the portfolio. There was a minor ~2% increase this quarter.

Note: SQ Advisors has a ~6.4% ownership stake in Cable One.

Liberty Broadband (NASDAQ:LBRDK): The ~5% LBRDK position was purchased last quarter at prices between $81 and $98 and increased by ~310% this quarter at prices between $86.50 and $97. The stock is now well below those ranges at $71.16. Liberty Broadband is a Charter proxy as its principal assets are a 22% ownership stake in Charter Communications and the subsidiary Skyhook (previously TruePosition). For investors attempting to follow SQ Advisors, Liberty Broadband is a good option to consider for further research.

The spreadsheet below highlights changes to Simpson's US stock holdings in Q1 2018:

Lou Simpson - SQ Advisors - Q1 2018 13F Report

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.